Trade credit insurance insures manufacturers, traders and providers of services against the risk that their buyer does not pay (after bankruptcy or insolvency) or pays very late.
The trade credit insurance policy will pay out a percentage of the outstanding debt. This percentage usually ranges from 75% to 95% of the invoice amount, but may be higher or lower depending on the type of cover that was purchased.
In the absence of trade credit insurance many trade transactions would have to be done on a pre-paid or cash basis, or not at all. It is an essential credit management tool and used to control risks, improve payment behaviour, obtain vital buyer information, and monitor exposures.